SCOTUS Ponders Class-Action Lawsuits Concerning Stanford Fraud

Last year, R. Allen Stanford was convicted for running atwo-decade $7 billion Ponzi scheme which offered fraudulent high-interestcertificates of deposit at the Antigua-based Stanford International Bank.  Investors have since filed class-action suitsunder state law against the law firms, insurance brokers, and financialservices companies involved in the fraud. 

On the first day of the new term, the Supreme Court heardarguments on whether these state class-action lawsuits are proper in light ofthe 1998 Securities Litigation Uniform Standards Act.  This federal law was meant to stop plaintiffsfrom getting around the protections offered to defendants under federal law bybarring many state-law class actions based on asserted fraud.  The law applies to asserted fraud “inconnection with the purchase or sale of a covered security.”  The justices spent about an hour trying todetermine whether the “phantom securities” involved inthe Stanford scheme would qualify as “covered securities.”

See Adam Liptak, Supreme Court Ponders Suits in StanfordFraud Over Securities That Never Existed, The New York Times, Oct. 7, 2013.